If the guy who called the top in the Japanese economy is right, then China faces a hard landing

The National People’s Congress kicks off in China on Thursday.
One very large topic will be whether the official target for
economic growth will be lowered to 7% from the current 7.5%.

Traders and central bankers all over the world will be hanging on
the decision, because it will inform the amount of stimulus (rate
and RRR cuts) likely over the year ahead as the PBOC manages the
growth rate.

However, it’s all a moot point according to Roy Smith, the former
Goldman Sachs partner who called time on the Japanese growth and
property boom before anyone else back in 1990.

Smith told Bloomberg that “The vulnerabilities in China today are
very similar to the vulnerabilities in Japan. Nobody agrees with
me. But they didn’t agree with me in 1990, so at least I have one
right.”

Shanghai Composite at
6-year highs (investing.com)investing.com

Smith sees parallels between China and Japan in the levels of bad
loans, an overpriced stock market and “frothy” property markets.
This leads to an overall fragility in the Chinese financial
system, conditions Smith saw in Japan before the fall.

Key to Smith’s outlook and the timing of any potential drop is
that he doesn’t see China eclipsing the US in terms of economic
might.

“Most people today are talking about China displacing the United
States as the great power of the 21st century. My view is that it
is more likely to end up like Japan – that is, the status of a
former would-be superpower that isn’t.”

Already the PBOC has cut rates twice in the past 4 months and
looks like it has joined
the currency wars as it tries to arrest faltering
growth.

If Smith is correct then a day of reckoning is at hand for China.
This means that rather than the steady glide path of
downward-managed economic growth, China would be in for a hard
landing.

The when and where is difficult to tell but Smith has some advice
for those still enamoured with the Chinese economy.

They say a rising tide lifts all boats – a falling tide reveals
all the rocks and slime.